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    Home > Finance > Bank of England launches tool to calm gilt market in times of distress
    Finance

    Bank of England launches tool to calm gilt market in times of distress

    Published by Global Banking & Finance Review®

    Posted on January 28, 2025

    2 min read

    Last updated: January 27, 2026

    The Bank of England has introduced a new tool to stabilize the gilt market, benefiting insurers and pension funds during economic turbulence. This image represents their efforts to enhance financial stability.
    Bank of England's new tool for stabilizing the gilt market during financial distress - Global Banking & Finance Review
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    Tags:financial stabilitygovernment bondsLiquiditypension funds

    Quick Summary

    The Bank of England introduces a tool to stabilize the gilt market, allowing insurers and pension funds to borrow cash using gilts as collateral during market distress.

    Bank of England Introduces New Tool to Stabilize Gilt Market

    LONDON (Reuters) -The Bank of England launched on Tuesday a new financial stability tool that insurers and pension funds can use during periods of turbulence in Britain's government bond market.

    The Contingent Non-Bank Financial Institution Repo (CNRF) allows companies to borrow cash from the BoE using gilts they own as collateral.

    Britain's 2.5-trillion-pound ($3.1 trillion) government bond market has been hit by volatility in recent years including the 2020 "dash for cash" as the COVID-19 pandemic spread and a 2022 selloff after former Prime Minister Liz Truss's "mini-budget".

    "Opening for CNRF applications marks a significant step forward in our efforts to deal with future episodes of gilt market dysfunction," said Vicky Saporta, BoE executive director for markets.

    The design of the plan was announced last year.

    The BoE intervened in September 2022 to buy gilts as yields rocketed following Truss' plans for unfunded tax cuts, creating liquidity strains for liability-driven investment (LDI) funds used by pension funds.

    LDI funds, pension funds and insurers are eligible to use the new repo facility, which the BoE will activate in times of dysfunction in the gilt market.

    Use of the facility will be charged at a spread over the BoE's main interest rate, priced to be unattractive during normal times but attractive during times of market dysfunction.

    Gilt yields also rose sharply this month, along with those of other major government bond markets but BoE officials have said the market functioned well on that occasion.

    ($1 = 0.8045 pounds)

    (Reporting by Sachin Ravikumar, writing by Muvija M and Andy BruceEditing by William Schomberg)

    Key Takeaways

    • •BoE launches a new tool for financial stability.
    • •CNRF allows borrowing cash using gilts as collateral.
    • •Aims to address gilt market volatility.
    • •Eligible for insurers and pension funds.
    • •Tool activates during market dysfunction.

    Frequently Asked Questions about Bank of England launches tool to calm gilt market in times of distress

    1What is the purpose of the CNRF launched by the Bank of England?

    The Contingent Non-Bank Financial Institution Repo (CNRF) allows companies to borrow cash from the BoE using gilts they own as collateral during periods of turbulence in the government bond market.

    2Who is eligible to use the new repo facility?

    LDI funds, pension funds, and insurers are eligible to use the new repo facility, which the BoE will activate in times of dysfunction in the gilt market.

    3How will the facility be priced during normal and dysfunctional market times?

    Use of the facility will be charged at a spread over the BoE's main interest rate, making it unattractive during normal times but appealing during market dysfunction.

    4What recent events have affected the gilt market?

    The gilt market has experienced volatility due to events like the 2020 'dash for cash' during the COVID-19 pandemic and a selloff in 2022 following unfunded tax cut plans.

    5What did Vicky Saporta say about the CNRF?

    Vicky Saporta, BoE executive director for markets, stated that opening for CNRF applications marks a significant step forward in addressing future episodes of gilt market dysfunction.

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